Following are excerpts from a CNBC interview with Julia Chatterley and Sky CEO, Jeremy Darroch
JC: So Jeremy, just define what Sky in 2016 represents and what's key to understanding your business?
JD: Well we're Europe's leading entertainment company. We operate now in five markets in Europe, in the UK and Ireland Germany Austria and Italy. But at our heart we're a consumer business we think of our job as to build bring the very best television across multiple platforms to our customers and really to help them get the most out of that service so if you think of the pillars that Sky has built on its the very best content from around the world the very best innovation to enable customers to get that content on whatever terms they want and then the very best customer service and brand so that our customers can trust that sky will always be at the forefront of what they need.
JC: At your core you are a Pay-TV business. When the media landscape is being disrupted left right and center whether it's consumer behavior or whether it's new entrants to the markets. Telcos in particular as well how do you avoid looking like an old media dinosaur that's relying on sports viewing rights to stay relevant?
JD: Well I think you know our heart that really talks to the culture and ethos of the business and really I think more than anything sky is a business about renewal and change and perpetually renewing itself for the future. We're actually a business that was established on disruption. I mean many years ago we were the disruptor in the market so this is really our core appetite which is to step in to change and to perpetually think of Sky for the future so in my time at Sky it's changed fundamentally in the 10 years I've been at Sky. It's been changing an enormous amount over the last three years and you know it'll have changed at least as much again in three years' time and then it will be fundamentally different in 10 years' time. So I think at its heart it's always having change as being an outcome of the business and perpetual renewal.
JC: We're going to come back to those three year jumps because I think they're very interesting but if we look at what Sky's paid in order to acquire the sports rights I mean 4.1 billion for the next three years 2.2 billion for the for the prior three years. I mean that inflation is incredible. What's it going to do to your share price if we see that inflation again in 2019 and beyond?
JD: Well I think the real question I think is about how effective are we at monetising those investments and what we've built in the UK is a highly effective monetization engine so we don't just supply sports rights in one way. We provide it in a multi multitude of different ways including pay as you go as well as a subscription service. And increasingly of course we're also able to leverage new revenue streams on the back of that.
So it's less about the absolute investment we make but actually about our ability to continue to grow continue to get greater scale and then to be able to monetize over a much bigger population if you like and build base of customers and you know the interesting thing about the UK and it's a characteristic of all of the markets in Europe is still only about 50, 55 percent of people actually pay for TV So if we can continue to persuade more people to upgrade then there's still a huge amount of value that we can then reinvest in the very best content for our customers.
JC: I'll come back to that in terms of just what else you can get in terms of paid viewers and subscribers. But let's say we don't look at it on percentage terms let's say. Those sports rights cost six billion euros in 2018 when you're negotiating for 2019. Can you sustain that can you monetize that. Because I mean that's a whole new level of ways that you have to try and find revenue generation capacity to sustain that surely.
JD: So that will come down to two or three different things I think. First of all the efficiency of our business model and you know one of the things that we've done incredibly well and often is overlooked is really reduce our operating cost or broader back office cost dramatically over the last the last period - we've actually taken something like 6 or 7 percent of sales of those costs so of course we can reinvest that on screen whether it's in sports rights or other areas. It depends on growth our ability to grow the business and then it depends upon our ability to persuade customers that the product is still valuable and something that they want to they want to keep spending in and it's good value for money. I think we did a really good job of that. Actually our sports rights as a percentage of sales haven't really increased over time because of course we've been growing ourselves at such an accelerated rate.
JC: Can you Imagine a point where actually the rest of your business justifies walking away from those sports rights?
JD: Well certainly sky's becoming much, much broader today one of the benefits of that is its given us just a greater number of options around what we do so I could look at a channel like Sky Atlantic. Our investments in entertainment content and of course what that's allowing us to do is appeal to more people in the household and perhaps people who don't want to get Sky for sport and it gives us then more options around what we invest in so just as we've invested more in domestic football for example we've walked away from some of the sports as well. So inevitably we have to make the right choices but it's still anchored I think behind the fundamental growth opportunity that exists in the business today.
JC: Sky now is a merger of the Italian operations the German operations and obviously the U.K. and Ireland just how is progress in terms of amalgamating those businesses?
JD: You know very good, in fact I'm delighted really with the progress that we've made have actually gone I think slightly faster than I anticipated at the outset we feel like a combined business now. And much of the initial objectives that we set ourselves when we brought the Sky's together we've achieved and of course that's what allowed us to take the next steps I think more quickly than we could have originally envisioned. So we feel very optimistic now about the future and the next steps that we are going to we're going to pursue as a business including increasingly creating and buying more content across all of the skies with events like with like the event we're at today.
JC: Italy was always going to be a challenge it's a very different market in a sense than the others in Europe it looks like a challenge when you look at the numbers how are you tackling that?
JD: Largely self-help you know. One of the interesting things about our business plan in Italy it was predicated on the change that we can bring to the existing business in Italy rather than really relying on the big change in the economy now and that is certainly true to say that Italy as an economy is probably more challenged than either Germany or the U.K. Slightly diverse - south of Italy is certainly the more under more pressure the further north you go the more you see in the overall economic backdrop that looks actually fairly similar to our other markets. So our goal in Italy is really to drive change within the Italian business it's really fantastic business and big business so we can we can get a lot of value just by doing that and that's where our initial focus has been.
JC: I want to come back to the point that you made I see this figure thrown around quite a lot 65 million homes that haven't bought into PAYTV is that number even relevant anymore given changing consumer behavior. The goalposts have shifted surely?
JD: Well it's an enormous number so I think it first of all it sort of scales well the size of the opportunity Just by getting right if we can convert Just a small number of those customers we're going to we're going to do very well.
JC: How small?
JD: But what I think is wrong to suggest in today's world is everybody's going to be consuming content and that 65 billion in the same way. That's not going to happen so we're going to have to broaden out and offer a much more diverse range of products so that means in the future. More of our goals for example will come through over-the-top services as well as the sort of traditional services that we sold and then there will be certain customers who will just want everything that sky offers and we can do we can do well there so you know we think we can grow - we're about 23 million households today we think we can grow that a long way over the next few years and you know we'll do that by continuing to attract more customers to Sky and that will require us to do new things.
JC: You said that you're increasingly agnostic about how consumers consume content but surely that's only really true if you can be flexible enough to meet their demand however that appears?
JD: Very, very much so, you know, I think our job as a business is really to orientate ourselves around customers, to recognize why, where customers behaviour patterns and viewing patterns are changing. How do we think about the business through their eyes if you like and then to build behind that a very agile model and one of the reasons that we've never been particularly focused on a technology is because it allows us to move quickly as we see behavior change move quickly I mean for example we were we were in two of the top distribution as far back as 2005. Now it was small at the time but of course it enabled us to accelerate and we can see that growing as a segment and a trend.
JC: So today how do you differentiate yourself because you're being bombarded on all sides by various competitors Netflix, Amazon, the Telco's, how do you differentiate?
JD: Well I think at its heart it's really content I think content is the thing that customers most associate with SKY and OUR job is to make sure we've got both the broadest and best range and quality of content from around the world. That's through working with our partners but increasingly commissioning creating more of our own content ourselves and then the second thing I think is by making it incredibly easy for our customers to access that content and allow them to get the most value from their subscription that's really where our skills and innovation and service come in come into play. And as with any consumer business underpinning all of that really is the sort of brand an organization. A brand that customers will trust and then an organization that is just exceptional in terms of how it executes in the market. So at Sky we spend a lot of our time talking about those four things because that's part of the recipe.
JC: We'll come back to content because I want to dig more deeply into that but how is Sky Q gone down to start out with and then what are your ambitions and hopes for more broader roll out there?
JD: So far it started well I'm very, very pleased by that very, very big undertaking to bring it to market. I think we've built you know what is the best TV viewing experience in the world I think you know it really allows customers for the first time to get access to all our content for the first time. Very complex to deliver, it's early days so we're just getting going and the nice thing about something like SkyQ of course which is a development that happened in the U.K. is we'll be able to bring that for customers in Italy and Germany at a rate so much quicker than those businesses would have ever been able to do on their own so we're very optimistic about that as part of our line up.
JC: So let's talk about NOW TV as well because this is something else where I think the big fear was that you were going to cannibalize FROM pay-TV subscribers. What is your subscriber base now to now TV?
JD: Well we don't split out NOW TV as numbers separately to SKY because we don't really look at it that way we think and what we look at TV subscribers and today if you look at our TV base you know we've got people who are paying as little as six pounds a month you know all the way all the way up. The difference with NOW TV is it's really allowed us to target a very different segment of the population than we could have done with Sky. If you think of Sky it's very much a family service with peace of mind with everything wrapped into the overall subscription price. Now TV much more pay as you go. Smaller packages typically. On the whole typically its singles rather than families and so it's highly complementary and it makes a lot of sense for us to do that through different brands.
JC: So as far as you're concerned these are discreet -one is not cannibalizing business from the other it is a complementary service.
JD: I think it is very much so and I think you know it allows us to exploit all those investments we've made across just a broader range of a range of technologies.
JC: You're also going to be working with Vice Media, the 24 hour news channel, and this is quite interesting because it's a 16 to 34 target really age demographic and this is them coming to TV rather than necessarily focusing only on the new media Internet streaming So what does this say about the fear surrounding the shift away from mainstream TV?
JD: Yeah look I think typically those things you know are overdone, you know, the idea that somehow TV is dead or is being [inaudible]. I think that's, you know, maybe 25 30 years we might see that...
JC: Do you think it takes that long?
JD: I do, you know, I think these trends happen over a long, long period of time so I think for a business like Vice it's fantastic that they are now coming onto our platform. We're going to give them immediate access to so many more households than they could get and of course for us we also need to be thinking about the brands and services that appeal to the new demographics younger people and how do we how do we step there. So there's a very good fit between both of us as businesses.
JC: You talked about content and the importance of content you've also hiked your budget for production spending as well how do you decide a balance between what you make yourself versus what you buy in because the more you invest the greater the risk of not finding that, That star show.
JD: Well we have really anchor relationships. I think with some of the longest partners who we've worked with for many years. So whether it's the big Hollywood studios whether they might be HBO or Showtime and, of course, this really anchors our content offering and allows - gives us great access to all of their creative talent and they are an outstanding production. And then with our own productions, you know, that gives us a different thing. Slightly more creative freedom. You know, we can control that process a bit more than we could in a different relationship. So the two things complement each other and then at the margin, you know, we'll just, we'll make choices we might buy an individual show that we like or you may say you know what we're going to produce a bit more this year. But that's really at the very top end of top end of that. So I think what you'll see over the next few years is us continuing to develop our big, big partnerships and that really being a core part of Sky's offer but then our own production business only growing to complement that in terms of size and scale.
JC: What's that ratio now in terms of budgets what you produce yourselves versus what you buy in?
JD: Well if you look at if you sort of go away from the likes of perhaps sport or movies as areas you know you'll see we're still buying more in terms of working with our partners relative to what we're producing ourselves. But the production piece will grow you know and probably will be a bigger piece. Where we end up you know actually I don't particularly have a number in mind because we'll just optimize that over time.
JC: Because it's also benefits of if you buy something in you have resale value so you can sell it on to the other guys so there are other revenue opportunities. I guess if you're looking at how you split this budget in terms of what you produce correct can offset some of the risk.
JD: That's right and sky vision which is our distribution arm and is growing incredibly well and is just a very efficient way for us when we own and create more the IP for like ourselves as you say to go and sell that on into new markets so all of these things I think complement each other in a pretty effective way.
JC: If we look at something like Netflix though and the dominance they have with something like House of Cards, again like your chances your opportunity of finding that one jewel. That makes you so influential in a sense is that something that you ultimately have to produce yourself.
JD: Well I think when you when you think about how do you access that sort of content, the first thing I think you do is you start always with customers really understand what it is that we can produce ourselves that is complementary to what we're acquiring through others. And then I think you place multiple bets, you know, and then, you know, you hope as a consequence of that that you will have some that will be very successful probably some less so. And eventually you know, you may hit something that really stands out. So I could look at a production, like fortitude, which we created ourselves and we decided to spend more money on because we're very confident about that show or a program like Lucky Man which is running at the moment and that's really worked very, very well for us in our market.
JC: But it doesn't have the sparkle of House of Cards so you just have to continue to pursue?
JD: Sure you just keep going, you just keep getting better, keep doing bigger and bolder things I think and you do things that work and, you know, the viewing you say doesn't have the sparkle, but when you look at something like fortitude, you know, that was seen by something like 13 million viewers across the markets that we're in so it was a very, very big production incredibly successful worked across probably a 10 or 12 period. So for us what we want you know that was that was a big success.
JC: Sparkly enough, Talk about the relationship with HBO as well because I think one of the things that we initially go to on that is Game of Thrones and how that's seen incredible viewing figures have you watched Game of Thrones?
JD: Yeah, I'm a big fan. It's fantastic, it's, I mean, it's an outstanding piece of television, isn't it really?! it's the biggest TV series in the world right now. I mean it's very interesting if I take you back to when we initially signed our first agreement with HBO and formed Sky Atlantic. We could see at the time that drama and big budget drama, in particular, was really going to be a growing trend in our markets and who better to partner with of course than HBO the home of sopranos and so many fantastic dramas.
Initially of course that was that was more of a distribution relationship we formed Sky Atlantic around that. Since then though it's just gone from strength to strength and now we're co-producing with HBO now which is you know it's very exciting I think for us and I think you know two organizations coming together that view the world in a very similar way and it's been you know very satisfying to see that we've evolved? now to a much greater much deeper relationship that I think will run for a long you know many, many years to come.
JC: Have you seen a sneak preview of the next season of Game of Thrones that I have to ask you if John Snow is alive.
JD: I'm afraid I can't give you any details or do you know you'll have to wait.
JC: But you do know (laughs) OK. Talk to me then you said about that joint relationship I mean that's with the other popes which is obviously something that the young pope sorry, which is coming up is that something that you're going to do more and more of?
JD: I think so yes I think so you know we I mean what we're really trying to do is do bigger high quality pieces that we can really get behind as a business so for us to work with the likes of HBO and these others and just create bigger individual productions is in our interest and those in their interest. I was on the set of the Young Pope just the other day actually it just looks incredible So I think it's going to be a hopefully a big success.
JC: I read somewhere that you make a billion pounds worth of free cash flow from advertising and subscriptions is that the right number?
JD: I think that should be higher than that. So yeah we're a pretty big business these days from everything that we do.
JC: So as an advertiser looking at your business with 23 million subscribers you said then you look at Facebook they've got one point six billion Facebook users, you've got Twitter with around 300 million as an advertiser Why would you choose someone that gets into 23 million homes versus the coverage that those guys get?
JD: Well I think the first reason of course is that those 23 million homes are highly engaged and broadcast media can be a very effective way for advertisers to position their brand at a time when people are, as I say, in front of the TV set. Whereas a lot of viewing on the internet you may not know that anybody's there but you know there's a little bit more transient. The other thing that we're doing increasingly now is we're delivering targeted advertising through the TV set so we can put a different advert in the broadcast stream according to the profile of the viewer. So we're starting to take a lot of the targeting that we've seen on the Internet and bring that to broadcast TV for the first time.
Of course, that's very exciting because that's allowing us to get into new areas like local broadcasts, but also target much narrower demographics of course that's opening up a whole wall of advertisers who previously could not advertise. Economically it didn't make sense for them to advertise on TV so I think what we're going to see actually is the ability to target through TV if we get it right.
JC: So when you look at it you say actually the price per second of advertising on TV is actually far lower than it would be on the likes of Facebook or Twitter for example.
JD: Correct and if we can get some of those some of those pricing ways on TV more closer to what we see in the Internet of course there's another very valuable source of growth for us.
JC: So ad blocking is music to your ears as well then if you're - for those guys.
JD: Well you know there's challenges everybody faces and that's one that they've got to deal with. We're a very different world for that. So we can exploit our own strengths and do it the other way and it's a good example, I think, of just the Innovation capability that's in the business you know this is something we worked on for a long time. But again we're going to be able to roll out well have rolled it out first in the U.K. but it will now extend to Italy and Germany and be a new service we can launch there.
JC: Speaking of innovation talk to me about what you're doing in Silicon Valley because you've been there for a number of years. Is this just about keeping on top of innovation keeping ahead or at least an eye on the big tech guys?
JD: Yeah look I think the results exist on the outside, so you know, as a business we have to either really plug into these pools of innovation whether it's in Silicon Valley or you know or elsewhere and really learn. And so what that allows us to do is to take a number of themes that we've got across our business to work closely with startups to identify businesses that we might want to work with, identify disrupters to our business model and learn more from them and then either exploit their technologies through Sky with Sky again in partnership. You know we'll find out more about some of the cutting edge ideas that are emerging from Silicon Valley or indeed in Europe as well.
JC: That was a question I was going to ask you obviously you've got a base in Silicon Valley but what about the European startup scene is that as exciting and what's that lack relative to Silicon Valley?
JD: I think it look I think it was it was slower to really get established and I think it's starting to accelerate now. It would be too soon I think to say it's catching up to Silicon Valley yet but its certainly starting to emerge. So for us we can do both you know and we've learned an enormous amount I think over the last two to three years in California and of course we can take a lot of those learnings and apply it here as well so I think we'll just do more and more of that over the next few years.
JC: There's a perception that as soon as the European guys can get any money they hope across and head to Silicon Valley. Often I think, you know, the big advantage of the U.S. of course is it's relatively one big homogeneous market so that's quite attractive.
JD: The U.S. domestic market is often very attractive for a lot of these start ups who are resource constrained. Of course, what we can do is say well, you know, if you work with us, you know, we can work across Europe with you and we support what you're doing. Give you some endorsement opened some doors for you or help you exploit that idea ourselves. And take a lot of that away from away from their plate.
JC: What more can be done by officials in Europe to support the startup scene?
JD: Well I think that, you know, a lot of the stuff we're seeing around the single digital market is good and I think if that can accelerate and can go I think in making it easier for small businesses to operate obviously you know things like cost and labor cost of residency all these sorts of things you know are real challenges for start up businesses. So I think removing the broader regulation and burden on these businesses is a good thing.
JC: Let's talk about streaming and innovation as well because it's intrinsically fragile. There's a belief that way 5G comes in fine that might revolutionize the game but we've got a number of years still til that comes in so what's going on there and have you cracked or at least can you sense that we're going to improve that. Because I think that for most people it's a problem, it's a frustration buffering - the B word?
JD: Well, you know, we've made enormous progress actually I think one of the reasons of course is that the satellite is so reliable it runs to five nines reliability. So it's, you know, it essentially never goes down. And particularly, if things are live where you have big peaks of people coming in to watch the start of an event or the end of an event of course we had that insight when we start to go over the top so we have invested a lot in our network and we've now got it not quite to the reliable use satellite but not very far short. So we're very robust and of course that gives us the basis now to scale robustly and that's not always true across the broad - across broadband streaming delivery that some others have found. A lot of entertainment content of course tends to have low audience share and lower peaks. So it's a bit easier to do it there but when you get into certainly big sports it's a completely different world so we need to see greater investment in broadband and mobile networks. You know we're big fans of building out fiber closer to the home 5G I think will definitely help as we get greater capacity and everything we see is that the demand to consume content over streaming services over mobile devices is only going to grow. So we really need to see that infrastructure being put in place to make sure we can stay ahead of the curve.
JC: Fast forward five years because then we've got 5G as well what proportion of the content that is consumed from you guys is streamed via the Internet versus satellite do you think?
JD: I think it's hard to put a number on it and in a sense it doesn't really matter for us..
JC: Doesn't it?
JD: Because I think, you know, we'll be able to flex according to where we see where we see demand. So if I take the UK we have something like two and a half billion views over the top already this year. Less so in Italy and Germany but growing rapidly as well. So the way we think about, it is rather than to, sort of, predict outcomes is to say both of these services are going to be there. How do we make sure we've got sufficient capacity and the robustness of delivery to enable us to [inaudible] and say to customers you know what you choose or you decide how you want to view this content we'll provide it for you.
JC: And monetize it because of course one's far easier to monetize than the other?
JD: It is all though for a lot of our subscription customers of course the great beauty is we charge them one price and we give them the ability and flexibility to consume it how they want. So you know I think what you're going to see and what we've seen really is the business move from we've from a reasonably narrow satellite model today a really truly multi-platform multi distribution business. And that journey which we're a reasonable way through has still got a long way to run and we'll just continue over a period of time?
JC: How far of the way through do you think you are 20 percent, 30 percent?
JD: I think in terms of having the basic building blocks in place, I think pretty much there. I think in terms of customers, you know, you'd still probably say around 30 percent that sort of number so that will just continue to grow but I think what you'll see is you'll see gradual increases which is what we've seen rather than any big inflection point.
JC: OK so I'm going to jump around a bit I realized. That's what I want to ask you. So Netflix and Amazon were nominated for 46 Emmy's this year. Like, its amazing isn't it. How do you compete? In terms of content when that's your competition?
JD: Well first of all of course I think the U.S. is a bit different. I think what you don't do is, you don't start by saying we're gonna go out and try to get nominated for an award. You know, I think you really hunker yourself and say we're going to deliver some great content for our customers. If the consequence of that is that we get awards then that's fantastic. We do and we do well but it's always the discipline of remembering. The happy customer. Is the goal and it's really the only goal. OK, cool, so do, you know, what I'm going to come back to that when I do the comparison between Europe and US. So that's the way I'm going to cheat that. Thank you. OK great. It's amazing there isn't. Yeah I want to read. OK. Yes. So it was. Monetizing. But one is far easier to monetize and the other going to get.
JC: But One of those is far easier to monetize than the other and you know pay TV crucial for your business?
JD: Sure, so, you know, if you take the subscription business, you know, what we're doing is it's all bundling a lot of those services into that subscription. And then for customers who don't take a subscription service, you know, we're using over the top more to provide more pay as you go type services for them and the good news for us is that customers really wouldn't - the customers who are requiring over the top aren't really subscription customers they are quite different populations. So it works very well together I think.
JC: What's the secret to a successful OTT business?
JD: I think, like any business, you know, the underpinnings of the service or the technology platform, the robustness of the service. I think having a different group to approach that in a slightly different mindset, I think for us having a distinct brand has certainly been an important part of that to allow us to appeal differently to different segments, and like all of our business, a lot of hard work.
JC: What about data? Should ultimately be crucial in this and that should give the likes of Amazon a huge edge?
JD: Listen, data's important, but data's important right across our business, you know, so it's important in our subscription business as well as in the over-the-top business, and it's an increasing facet of what we do. So yeah, very, very important. We're collecting more data than ever before. You know, second by second, viewing off the set top box which is really giving us insight around how customers are consuming, how they stay in the program, how they treat an ad break - of course all of that is being built up into their future services that we deliver.
JC: Talk to me about Jaunt, because this is your escapade into virtual reality isn't it – there's a huge buzz around this.
JD: Well I mean it's an interesting example actually of our work in Silicon Valley. Two or three years ago and had a call from Danny Rymer who was one of the partners in the [inaudible] and Danny was on our board and he said to me, Jeremy I'd like you to go and see these guys if you can fit it in, and it was Jaunt and I changed my plans and went to see them and off we went from there, and I was immediately blown away by what they're doing.
And I think virtual reality and augmented reality, you know, we're all going to be new services and you can see opportunities for them to be exploited and how they may work. Ultimately what size they become, we'll have to wait and see. You know recently we've had HD become huge, 3D never quite grabbed the attention in that way. I think there's a lot of really encouraging signs on virtual reality from Jaunt and many others.
JC: Don't you think it's quite niche. I mean you have to wear a headset - oculus with Google?
JD: I think until you get the headset honed down and perhaps you get to know the glasses ... it's a long burn for these things, but you can already start to see certain exploitations, the gaming market is an obvious one, where it's going to be, it's going to be quicker and bigger faster.
JC: Talk to me about the future for Sky as well, I mean there's numerous ways you can grow this business whether it's further acquisitions, whether you look at the barriers to distribution coming down, like what makes most sense do you think for you?
JD: Well the first to say is that we've got an enormous opportunity in the markets already and we mustn't lose sight of that. So just securing that alone will give a huge amount of growth for the business.
But alongside that you know, I've never been as excited with the possibilities that exist, whether it's opening up new categories in our existing markets, we're about to go into the mobile market in the U.K. and I think that will be a big business for us.
Perhaps going in to another territory, investing more in content, developing additional services that we can sell and it's really our job to look through, again the eyes of customers, and say what are going to be the best services for our customers and how do we pursue those at scale and really stay focused around that, but in my time at Sky I've never seen more new ideas, more opportunities for us to do more in the markets we're in now, not before we even think of new places we may go.
JC: Is there an opportunity that you see in the market at this moment that actually other people aren't talking about?
JD: Well I think we've been really early adopters in terms of innovation generally. I mean we have stepped into new innovation typically faster than others. We've stepped into customer trends faster than others, if I look at the markets for example in Europe, relative to the U.S. and we're seeing things like cord cutting and cord shaving. Yes we're not seeing that here in the U.K. and Europe because we really stop selling the bundle seven or eight years ago, we could see this trend coming, we moved quickly and have grown very different from the back of it, so we've always had this this appetite to change and have a go and, you know, get into new trends because we felt that by stepping into those trends that we'll be able to shape them in a better way rather than resist them. And I think it's been a succession of things where people have perhaps followed where we've led.
JC: Let's talk about that then, the difference between what we see in the U.S. media back drop, and in Europe you mentioned the idea that actually Europe was more flexible earlier on in terms of bundle size in giving consumers different choice, why wasn't the U.S. more flexible early, why didn't they see it coming?
JD: Well I think, you know, the U.S. doesn't really have a very significant free to air market. So I think you know actually whilst that's a challenge when you're competing against that, that's not a very good anchor [inaudible] and a Rod for the business that we have to overcome, and we compete against free and that's not always an easy thing to do. So I think I probably left the U.S. for a while, I was able to stay just doing the things that it had previously done, and that really led to, as I say, these big packages and the pricing. That's a lot higher in the US than it is in the UK, so as new services and over the top started to emerge, it became quite attractive for many people to say, well you know actually I'll create my own bundle. In Europe, you know, very different, I think really deliver that first tranche of growth if you like. And we increasingly said well, how do we grow from here, and we knew that that had to be different and to do what we've done in the past.
JC: I read that the pricing was 50 to 60 percent more expensive in the US compared to options in Europe, how sensitive do you think consumers actually are about price when there's a lot of choice available? Like is there that significant degree of price sensitivity or..?
JD: Look, I think generally, campaign pay-TV in Europe is incredible value for money, if you look at what you can get for a month relative to the cost of a family night out you know its outstanding value. Now the question is how do you communicate that and sometimes the perception of that can be a little bit different. Now, in choice, customers will shop around - it's a very considered purchase so they will shop around to get the best deal that works for them.
So you know for us what does that mean, it means we have to provide more of that choice, you know, we don't want to just be offering narrow choice we want to be offering broad choice. A whole range of points that work for individual customers. We talk a lot about right sizing customers, I would generally be much happier for a customer to be getting a package which is appropriate for them where they are stable, than perhaps them taking something a bit more expensive which they can't really afford and then returning and wanting to leave.
So you know we think about breadth of choice for customers and then really helping our customers get the package that really works for them.
JC: Look ahead three years, given the changes that we're seeing with the cord cutting in the U.S. and the entire media landscape, consumer behavior is changing. What do you still see or think will be there? What are the key differences between the U.S. and Europe at that point?
JD: I think you'll probably see the U.S. come a little bit more to some of the things that we're seeing in Europe definitely. So, I think that will be a bit different. Second thing of course which is enormously different is still we've got such big headroom here in Europe.
So I think we'll continue to see a lot of the US media companies want to try and participate in some of that, and there's a lot of growth for everybody as part of that, but then I think the other things will be the same, I think the big businesses that will win in market deeply market.
You know, will continue to be anchored by the very breadth, the very biggest range and quality of content, will continue to be leaders in innovation and technology, will step into new trends rather than resist them and then crucially, you know, they will have a grand proposition and a service proposition that customers trust and can rely on. We should always remember that for most households the pay-TV is quite a big commitment as a service. So they want to know that when things go wrong, as they occasionally do, they're going to be looked after.
JC: We look at the differences in content between what we get from the U.S. and Europe, in particular I read recently that combined Amazon and Netflix we're nominated for 46 Emmy's this year. I mean how do you compete with that?
JD: Well I think what we do is we play our own game. We understand where we want to be successful and we do that, and again, to return to our theme that's all of our customers, it's about setting out to create content that our customers love and that works at scale. And if that leads to awards downstream then of course that's great. I think the second thing is the US market again in Europe is quite different.
The big opportunity for us, I think, is to really now tap into some of the cultural diversity and richness that we see in Europe, to combine that with many of the production capabilities that have come across from the US and I think if we can do both of those things, then, you know, we're going to be really well placed to offer customers a huge diversity and quality of what they want.
JC: The number of award suggests that the model is working?
JD: I think both Amazon and Netflix in particular are starting to emerge as these first digital channels that are quite thin in one sense, but operate over many, many markets, and that's their approach. That's a little bit different to what we're doing, we're very deep in market, you know, and we're really trying to lead in those markets and be the scale player. So actually both Netflix and Amazon, whilst we'll compete with them for key pieces of content, again they're often very complementary to Sky, many of our customers may take a Netflix or Amazon, and subscriptions as a top up to their core Sky service, but the main service in the household is Sky on their TV .
JC: When you hear that Amazon pays 250 million dollars for 3 series of a Top Gear reboot, so we're talking 83 million dollars per series, does that sound like a smart investment to you?
JD: You have to ask them about that, certainly a big number, that's for sure, but you know I spend a lot money on domestic football in Europe so.
JC: So they may look at you and say you're crazy. I want to talk about you specifically, I mean, you took over the Sky business at an incredibly transitional time for the industry. We have obviously had the hacking scandal and the intense focus on media. How do you go about building a business, looking at a business in that kind of environment?
JD: Well I think sort of 2 or 3 ways. I think first and foremost, you understand the core fundamentals of the business, the things that we talked about, and you make sure that you keep those narrow and then you really deploy your capital, whether it's human resources or financial resources aggressively against those opportunities and don't really allow business to get ragged. I think one of the challenges for big media companies today is there are so many things that we can do. It's very easy to go down blind alley ways if you're not careful.
I think the second thing is, you know, you always protect the brand. We at the end of the day, it's a bit of a truism but I believe in it that, we serve the brand and we serve customers, we always think about, you know, are we doing the right long term things for our brand. And then finally you create, you know, the right culture in the business, you know, a culture that's based upon a strong set of principles and values that really wants to do new things and renew itself, and a big advocate for change and then my job is to support the ambition that delivers that.
And I think when you put all of those things together, you know, what starts to emerge becomes a winning model but a model that's flexible as well, and so, you know, it can move to the right place, always understanding the key bits of customer brand, people are the things that will define Sky, you know, for the next 10 years just actually as they defined Sky over the last 10 years.
JC: Do you think some part of that culture change internally, and also the outside perception of media in light of the hacking scandal, and I think the scrutiny that the industry had to happen?
JD: Well I think media businesses and businesses like Sky and other businesses, not just us, you know, they are very, very important businesses in the societies in which we live, and I think it's right that we are put under scrutiny, and when that scrutiny occurs and we have to deal with it properly and stand up and explain, defend it where necessary, but it's important I think also, you know, not also to read too much from one particular event that happened in one part of the industry, it was really quite specific I think to that industry as opposed to everything else, you know, I didn't grow up in the media industry - I grew up in the consumer goods industry and actually I would liken Sky much more to a consumer staple, a consumer goods business than actually I would to many of the old areas of media that sometimes we're compared to.
JC: But I think you do, that comes through in your conversation in that you always bring it back to the consumer and I think that actually has to be quite crucial, doesn't it, particularly given what's going on in the industry?
JD: Very, very, very much, so, you know, as I say we compete against a free service in our market, so we have to create products that people are willing to pay for and see value in and I think one of things I've learnt over the last ten years through the economic recession and the change that we've seen in this industry, is that actually fundamentally people's desire for entertainment content for television remains, I think, as strong as it ever did, and people really see it now as a core part of family life, and I think perhaps that's the big fundamental change that's happened, you know, in Europe now which is, you know, pay television and paying for a better TV service, has really become central to the fabric of society.
JC: They just consume it in many different ways as opposed to one central one.
JD: Right, and you know our job is to just keep making it easier for them to continue to be able to watch our great content how they want to.
JC: What does the return of James Murdoch mean for Sky's business?
JD: Good. It means good. He's going to be a brilliant chairman and he was a fantastic chairman when he was chairman before, he's always been an incredibly strong board member and contributed a lot and, of course, he ran Sky so he understands you know what, Sky's about incredibly popular in the business and he and I worked together for a long period of time, so Nick Fergus, our departing chairman, you know, he's done a great job for us over the course of the last few years, but we're delighted to have James back and of course with his global perspective of media he really adds an awful lot to the business at multiple levels.
JC: And for those that look at it and say, you know, they're concerned about past history with the Murdoch empire, concerned about the corporate governance of having the largest shareholder effectively represented on the board, what do you say to them?
JD: Well, the good thing is that we've thought about all of this, we have the processes in place just to make sure that every shareholder of interest is looked after in an appropriate way, and actually it's been stress tested. Because, of course, we were part of the bid process and we recognised across the board. FOX or News Corp as was, the independent shareholders that was a point where interests diverged and we just needed to, you know, run the board and governance in slightly different ways. So I'm very confident that all of our shareholders' interests will be protected in the right way and that will create value for everybody equally and fairly.
JC: Is Sky a better prospect for Fox as an acquisition target today than it was back then?
JD: Well, you know, I'd like to think we're a better prospect for everybody, I mean we have certainly grown enormously over that period and pretty much delivered everything that we said we'd do, so as I say to the team, you know, our job is just to keep getting this business bigger and better to keep investing for the long term. If at any point, you know, a public company or somebody comes along and says they would like to make a bid for you, then we'll deal with that at the time, but we're not going to wait for that, you know, we're going to be masters of our own destiny. We're going to just build a fantastic business over the next few years.
JC: So as masters of your own destiny, what's the message here to both consumers and to shareholders about Sky's plan for the future?
JD: Well, I think in its simplest terms, you know, the purpose or the objective of business is to create more happy customers, and really that's what we wake up every morning to do, and when you create more happy customers, good things flow from that and certainly shareholder returns flow from that. But customers reward you with business so you focus on them and everything else will follow from that.
JC: Jeremy, great to chat to you on the CNBC conversation. Thank you.